This morning in metals news, copper prices have been sliding amid growing fears over the spread of the coronavirus in China, laminated steel manufactured by Tata Steel in the Netherlands has been exempted from U.S. tariffs and China’s Jingye is reportedly considering building a new metals recycling furnace in the U.K.
Honda’s sales ticked up 1.9% to 141,296 units, with its car sales up 1.8% and truck sales up 2.1%.
Toyota Motor North America reported July sales were up 0.2% on a volume basis, but down 3.8% on a daily selling rate basis compared with July 2018.
Meanwhile, earlier this year Fiat Chrysler announced it would shift to quarterly sales reports, following other Detroit automakers General Motors and Ford Motor Company.
Fiat Chrysler did report its second-quarter financial results, reporting adjusted EBIT in North America of €1.57 billion, up €168 million from Q2 2018. Fiat Chrysler’s North American shipments fell 12% due to dealer stock reductions, according to the automaker.
“We continue to deliver strong performance in North America and LATAM. Robust demand for our new products, along with steps we’ve taken to exert discipline across all of our businesses, have generated the momentum to achieve our full-year 2019 guidance,” CEO Mike Manley said in a prepared statement.
General Motors announced Q2 2019 income of $2.4 billion, up 1.6% on a year-over-year basis. In addition, this week GM announced it would open a $65 million parts processing facility in Burton, Michigan, a suburb of Flint. According to GM, the facility will employ more than 800 hourly and salaried workers.
In this month’s J.D. Power and LMC Automotive forecast, July new-vehicle retails sales in the U.S. were expected to fall compared with July 2018. Meanwhile, total sales were forecast to fall 1.8% compared with July 2018.
The seasonally adjusted annualized rate for total sales was forecast to reach 16.7 million units this year, which would come in approximately flat compared with 2017, according to J.D. Power and LMC Automotive.
“July will be another month of modest sales declines—but with high vehicle expenditures—as the average new vehicle sales price exceeds $33,000, up over $1,400 from July 2018,” said Thomas King, senior vice president of J.D. Power’s data and analytics division.
According to J.D. Power, the rise in prices is being driven by “consumers paying more for recently launched SUVs and more attractive interest rates on new vehicles that help keep monthly payments affordable when purchasing more expensive vehicles.”
As Burns explained, some foreign automakers are operating at remarkably low percentages of capacity in China.
“The Financial Times reported Ford’s plants in China operated at only 11% of capacity during the first six months of this year, as the firm’s car sales plunged to 27% of the same period last year,” Burns explained.
“Meanwhile, Peugeot owners PSA’s plant in Chang’an produced just 102 cars — yes, you read that right, 102 cars — in the first half of the year, meaning its capacity utilization was below 1%. The firm’s other joint venture with Dongfeng Auto ran at just 22% of capacity, the article reported, as sales were just 62% of the same H1 period last year.”
On the other hand, Japanese automakers and premium European brands have fared well, Burns noted.
“Japanese carmakers, for example, remain strong,” Burns wrote. “Honda and Toyota are both running extra shifts to maintain better than 100% capacity. Premium European brands are doing well, with Daimler’sBeijing Benz joint venture running close to 90% capacity while BMWBrilliance is running at 96%. If it were just the sale of low-end cars that were suffering, you would expect the Japanese carmakers and Volkswagen to also see a similarly sharp downturn, but they are not.”
Actual Metal Prices and Trends
U.S. HDG rose 4.4% month over month to $813/st as of Aug. 1. LME three-month copper fell 0.5% to $5,950/mt.
This morning in metals news, U.S. copper deposits are garnering investment from electric vehicle (EV) industry players, London copper rose Friday and the E.U. mulls retaliation if the U.S. imposes tariffs on automobiles.
The copper price struggled through the final quarter of 2018, but according to a Reuters report the metal could be getting a boost in demand from the EV sector.
According to the report, U.S. copper deposits have received $1.1 billion in investments from miners looking to fill demand from EV makers.
LME Copper Rises
Sticking with the metal, the London copper price moved up Friday but was set to take a weekly loss, according to Reuters.
The projected 1.6% weekly drop would mark the biggest weekly decline since late December, according to the report.
Back and Forth
Last August, the U.S. Department of Commerce launched a Section 232 probe investigating whether imports of automobiles and automotive parts pose a national security threat.
While the Commerce Department has yet to take action — the first step being the submission of a report and recommendations to President Donald Trump — the E.U. has promised to respond if the U.S. opts to impose tariffs.
According to a report by Fortune, the E.U. this week said it is prepared to impose $23 billion in tariffs on U.S. goods if the U.S. imposes tariffs on automobiles.
The Commerce Department launched the Section 232 automotive probe May 23, 2018. Pursuant to Section 232 of the Trade Expansion Act of 1962, the secretary of commerce must present the president with a report, including recommendations, within 270 days of the initiation of the probe (making for a late February deadline in this case).
Section 232 produced the Trump administration’s tariffs on imported steel and aluminum (25% and 10%, respectively). Prior to the Trump administration, Section 232 was last invoked under President George W. Bush in a 2001 probe that investigated the impact of imports of iron ore and semi-finished steel.
The Financial Times this week reported on the announcement by BlueScope Steel, Australia’s biggest steelmaker, to examine adding 600,000 to 900,000 metric tons per year of steelmaking capacity to its North Star business in Ohio. This would raise the Ohio plant’s existing production of 2.1 million metric tons per year to some 3 million tons at a cost of between U.S. $500 million and $700 million.
The project would involve the addition of a third electric arc furnace and a second slab caster, according to the Financial Times report. A decision is expected at the company’s February 2019 annual results pending the outcome of the feasibility study, by which time a clearer picture may emerge of what the tariff landscape is going to look like longer term.
Interestingly, Australian steelmakers are exempted from the tariffs; in theory, BlueScope could have invested at home. Australia, however, along with Argentina, are subject to quota limits, so ramping up domestic production to meet U.S. demand is not considered a viable option.
The resulting price rises have fueled a rally in U.S. domestic prices, helping firms like ArcelorMittal surpass forecasts previously set by analysts. Arcelor’s earnings came in at $5.59 billion before interest, taxes, depreciation and amortization for H1 2018. That represented an increase of 28.6% on the same period a year before, as half-year sales rose 17.6% year-on-year in value terms to $39.2 billion, primarily due to higher steel selling prices. Net income was up by almost one-third to $3.06 billion. It hasn’t yet resulted in Arcelor announcing any increased investment in domestic U.S. production capacity — the real aim of the tariffs — but, arguably, steelmakers are waiting to see how the whole tariff situation develops and whether they are truly here to stay (in which case, investment could result).
The U.S. Department of Commerce found foreign steel accounted for about one-third of the 107 million metric tons of steel the U.S. economy used in 2017, the Weekly Standard reported.
Although U.S. producers still have a commanding market share, the report concluded that inexpensive foreign imports were causing domestic steelmakers to lose money, lay off workers, and close plants last year.
U.S. steel plants in 2017 ran at just 72% of capacity, below the 80% level they are widely considered necessary to be profitable. The blame for poor capacity utilization fell firmly at the door of “excessive imports of steel.”
Well, that was last year; this year is something very different.
Following tariffs, steel prices are up sharply, profits are up at the domestic mills and so is capacity utilization. The domestic mills have the option to price balance towards full capacity, shielded as they are now behind a 25% import tariff. They may choose to take higher prices and forego full capacity or adjust pricing to achieve full capacity; we will see what policy has been adopted when Q3 and H2 figures are released.
It is unlikely significant new capacity will be added in the short term, though, despite talk of planned new capacity.
According to Reuters, steel output in the United States rose 2.9% in the first half to 41.9 million metric tons and gained 0.8% in June to hit 6.9 million tons for the month. Data from the American Iron and Steel Institute (AISI) show capacity utilization at U.S. mills in the year to July was 76.4%, up from 74.4% in 2017, suggesting domestic mills generally are opting for better prices as a route to profitability rather than pricing out tariffed imports.
Miner BHP Billiton has plans to ramp up its production of a cobalt product used in electric vehicle (EV) batteries, Bloomberg reported.
Per the report, the miner has had success in producing cobalt sulphate alongside its nickel product at its Western Australia operation, according to an interview with Asset President Eduard Haegel.
Questions about cobalt supply and price volatility persist, but a miner of the size of BHP looking to expand its presence in the sphere is an indicator of the metal’s importance and, thus, the level to which the EV market is coveted.
Speaking of Cobalt Prices…
The price of the coveted metal has come off a bit of late, but that might just be a short-term blip.
According to the Toronto-based Sherritt International Corp — a miner with operations in Cuba, Madagascar and Canada — the softening of cobalt prices should reverse as demand continues to pick up, particularly vis-a-vis the growing EV sector, Reuters reported.
According to the report, the Korea Offshore & Shipbuilding Association is asking for the freeze because price hikes threaten their survival, as declining orders and increased competition from China have weighed on the Korean shipbuilding sector.
Thick steel plate prices jumped $44/ton in the first half of the year, according to the report.
Actual Metals Prices and Trends
Japanese steel plate fell 1.0% month over month to $715.62/mt. Korean steel plate rose 1.6% to $682.89/mt. Chinese steel plate fell 4.4% to $707.51/mt.
China’s Shandong province has new targets for cuts on steel and coal production, Reuters reported.
The plans include cuts to pig iron production capacity of 600,000 tons and crude steel of 3.55 million tons by the end of this year, according to the report.
Copper Supply-Side Issues
The copper price has been in a downtrend of late. While it remains to be seen if the downtrend will become a long-term slide, copper watchers are also paying attention to supply-side issues at Freeport-McMoRan’s Grasberg mine in Indonesia.
Zinc has also been trending down this year. LME primary cash zinc opened the calendar year at $3,288/mt, but was down to $2,895/mt as of Wednesday, June 27 according to MetalMiner IndX data, good for a 12% decline through the nearly halfway point of the year.
Still, the zinc price remains in a long-term uptrend that dates back to December 2015.
The LME zinc price has dropped 12% so far this year, but is still in a long-term uptrend. Source: LME
A Global Surplus in Q1
First, we must look at basic supply and demand. According to the International Lead and Zinc Study Group (ILZSG), the global refined zinc market boasted a 25 kt surplus in Q1 2018. In addition, reported inventories rose by 118 kt in Q1.
Zinc mine production, however, barely budged in Q1 compared with Q1 2017. In Q1 of this year, mine production was 3,086,000 tons, compared with 3,082,000 tons in Q1 2017.
Meanwhile, refined zinc metal production globally jumped 1.7% year over year in Q1 2018, as production in Australia, Belgium, China, Norway and Peru helped cancel out decreases in India and China, according to ILSZG.
As for actual usage, that only increased by 0.4%, driven by demand from China and India, according to the report.
The U.S. dollar correlates inversely with zinc, as it does with other base metals.
As such, it’s important to note the firming of the U.S. dollar over the past few months. The index is up 5.74% compared with three months ago, according to MarketWatch data.
Chinese Smelter Cut Gives Price a Boost
The zinc price did get a boost on Thursday, June 27, as Chinese smelters plan to cut production by 10% on account of low prices, according to a Reuters report.
The Raw Steels MMI decreased again this month, falling two points down to 77. Steel prices seem to have lost momentum and fell this month both domestically and internationally. However, mills have announced price hikes for November.
Prices in October fell for all forms of steel, although HRC and plate prices increased slightly at the end of the month.
Source: MetalMiner data from MetalMiner IndX(™)
However, historical Q4 price trends generally suggest rising prices and increasing demand. In addition, industrial metals remain solidly in a bull market.
Will steel prices see a bump too? Let’s take a look at the market indicators.
Domestic Steel Market
Domestic steel prices fell this month after trading flat (sideways) for the last few months. Steel price momentum has declined but Q4 increases often come in November and later. Service centers still report steady demand, despite significant steel price drops in October.
Lead times increased for all forms of steel. Increasing lead times generally support rising steel prices.
Let’s Not Forget About China
Curtailed Chinese capacity has supported steel prices during most of the year (particularly during Q3).
However, no real shortage exists, as China increased production in the summer to meet heavier winter demand.
In October, the Chinese Steel PMI fell to a 6-month low, though it remains above 50, which still signals growth.
Source: MetalMiner data from MetalMiner IndX(™)
During the first few days of November, Chinese CRC prices held steady while HRC prices fell slightly. As HRC and CRC prices commonly move in tandem, prices will likely adjust during the month. Buying organizations should watch Chinese prices for signals of a price rebound.
Raw Materials and Scrap
Scrap prices fell together with steel prices this month. Scrap prices held somewhat steady during 2017 (as have steel prices).
Source: MetalMiner data from MetalMiner IndX(™)
Raw material price dynamics tend to correlate with steel prices. Steel prices decreased in October, following iron ore’s September price falls. Coal prices traded sideways in October, despite the short-term uptrend that began in April. Early November iron ore prices appear flat, while coal prices increased to the $100 level. Increasing raw material prices may create some upward movement for steel prices.
What This Means for Industrial Buyers
Steel price dynamics continued to lose momentum this month.
However, buying organizations will want to pay close attention to Chinese price trends, lead times and whether domestic mill price hikes stick.
The U.S. Midwest HRC futures 3-month price increased this month by 1%, reaching $605/st. Chinese steel billet increased by 0.9%, while Chinese slab prices increased by 2.4% reaching $603/mt. The U.S. shredded scrap price decreased by 6.33%, falling to $281/st.
The basket of metals in this sub-index posted a strong month. Steel plate from Japan, Korea and China rose in the month. U.S. steel plate, however, fell 4.6%.
Meanwhile, in the topsy-turvy world of grain-oriented electrical steel (GOES), the U.S. GOES price jumped 7.3%.
Of the nine metals in the sub-index, only one (U.S. steel plate) posted a drop in price as of Sept. 1. Chinese silicon, cobalt and neodymium all also posted price gains.
Charged Up for Cobalt
Last month, we wrote about cobalt, which is in high demand for its application in electric vehicle batteries. Cobalt is mined predominantly in the Democratic Republic of Congo, which has been shaken by violence and political instability this year.
The instability there has seen production in the DRC decrease this year, yielding significant price increases in the metal. As we wrote last month, the instability of cobalt (not to mention growing ethical concerns vis-a-vis child labor at mines) has some battery makers looking to adjust their metal formulas, in some cases suggesting the use of more nickel, instead.
According to a Reuters report, however, cobalt has been boosted by projections touting a rise in purchases of electric vehicles. According to the report, UBS forecasted electric vehicles will account for 3.1% of global car sales in 2021 and 13.7% in 2025, up from 1% this year.
In addition, cobalt listings have skyrocketed, the report says. As of the end of July, 100 companies that explore or mine for cobalt were listed on the Toronto Stock Exchange and TSX Venture Exchange, up from fewer than 30 in 2015, according to SNL Financial.
In short, despite issues of supply volatility — and, thus, material cost — cobalt’s profile continues to rise in tandem with the rise of electric vehicles.
What About U.S. Steel Plate?
Like the rest of the U.S. steel industry, steel plate producers are anxiously awaiting the Trump administration’s determination in its Section 232 investigation of steel imports.
The investigation, announced in April, has a January deadline. The investigation picked up steam earlier on in the summer, but has seemingly been put on the backburner for the time being. As such, initial optimism from U.S. steel producers regarding potentially imminent trade action stemming from the investigation began to wane.
In a letter to the Trump administration last week, the American Line Pipe Producers Association (ALPPA) urged the president to take action, also mentioning steel plate in the process.
“The ALPPA strongly supports the imposition of tariffs to address this crisis,” wrote Timothy Brightbill, counsel to the ALPPA. “With tariffs in place, we could quickly return to full capacity, adding hundreds of direct jobs in addition to upstream and downstream jobs as well.
“However, in order for tariffs to be effective for our industry, steel pipe must be included in any tariff covering steel coil and plate, as failure to do so would be devastating for domestic large diameter line pipe producers and workers.”
Actual Metal Prices and Trends
Korean steel plate rose 3.0% to $533.61/metric ton. Japanese steel plate rose 0.2% to $726.42/mt. Chinese steel plate jumped 12.2% to $655.45/mt.
Meanwhile, U.S. steel plate dropped 4.6% to $719/mt. U.S. GOES rose 7.3% to $2,765/mt.